What Are the Implications from Cancelling Life Assurance?

Look before you leap, er,
cancel!

Your life assurance policy is
an asset and as such, cancelling your policy requires serious consideration.
You may cancel your policy any time but you should do so only after you have
studied its implications.

There are some reasons why
people cancel their life assurance policies.

For instance, if the life
assurance cover was taken due to a mortgage and you are able to pay off the
entire mortgage earlier, then you can cancel the coverage. There are also
instances, where premiums on new policies are cheaper than what you already
have. Other reasons include the loss of your job (where you can’t afford to
keep on paying the premiums), a divorce, a need for some capital or cash or a
change in your family situation.

As much as possible, it is best
to keep your life assurance policy until maturity. But if you are decided upon
cancelling your policy, then you should know what you may lose by doing so.

However, you should also
remember that you will have to undergo new medical exams and your waiting
period will also be reset to zero.

What You May Lose When You Cancel Your Policy

Life
insurance cover.

You will lose the life insurance protection provided by
the policy. This means that if something happens to you, your beneficiaries can
no longer claim for the death benefits that they would have received had the
policy been allowed to stay in force.

Possible
changes in premiums.

If you decide to get another life assurance policy
later, the rates will more often than not be more expensive than what you are
currently paying for now. There may be changes in your medical condition that
will warrant new and higher premium rates.

Completed
waiting period.

When your old policy was first issued, there is usually a
waiting period. During this waiting period, the insurance company can contest
any claims made if there is proof that some misrepresentation occurred. When
you take on a new life assurance policy, your waiting period will reset.

Potential
investment earnings.

When you are thinking of cancelling a life assurance
policy, especially one that has been in effect for years now, you may lose
investment income for the money that has already been vested on a certain
portfolio. There will also be penalties when cancelling a life assurance policy
early.

Another
important caveat:

Be sure that you are already covered by your new policy
prior to your application to cancel your old policy, just to ensure that you
have coverage at all times.